Opened as a family discount shop in the suburbs of Essen, Germany, Aldi discount supermarket chain with its no-frills shopping experience business model, has its stores in around 20 different countries with more than 1600 stores in the states alone.
With the advent of online grocery shopping, running a profitable brick and mortar grocery business has never been more difficult. There is stiff competition among the major players which include names like Walmart and Amazon and profits are slim for many other popular names. Amidst this, a family owned discount supermarket chain is giving Walmart a run for its money by offering comparative advantage through a no-frills- shopping experience and cheaper prices.
Aldi, short for Albrecht Discount was started as a humble discount shop in Essen, Germany by Anna Albrecht in 1913 and was later expanded by her sons, Theo and Karl Albrecht. The brother opted for a no-frills model to reduce waste and costs and sold only non-perishable goods at discounted prices. Today, Aldi is one of the world’s most valuable grocery store chains with over $80 billion in revenue. It still follows its no-frills business model and surprisingly, people love it.
Aldi’s business model requires customers to pay for shopping carts and bags. They are also required to bag their own groceries in a separate section away from the cashier’s desk. Despite this uncanny approach, scores of people make their way into an Aldi store every day. Aldi has more than 1800 stores in the US alone. It’s just behind Walmart and Kroger in the list of America’s largest supermarket chains.
How does Aldi operate?
The Aldi business model has been the subject of several business case studies. Aldi discount supermarket chain unabashedly and unapologetically kills shopping experience to remain profitable. The supermarket strips down shopping privileges and convenience that Americans are so used to.
It first starts with shopping carts. Unlike other supermarkets which hire employees just to manage and assemble shopping carts, Aldi makes its customers do this chore themselves. Customers have to pay a quarter as a deposit for a shopping cart which they can retrieve on returning them. Another cost-cutting trick that Aldi uses, though very inconspicuous, is the size of product barcodes. The barcodes are either supersized or printed on multiple places on a product to speed up the scanning process. After customers have paid, bagging their groceries is also their duty. And, since customers have to pay extra for shopping bags, one would find people carrying their groceries out of an Aldi supermarket in cardboard boxes or sacks. This self-help tactic speeds up the billing process drastically and eliminates the chances of a queue, a problem people often face at Walmart.
Aldi supermarkets store selected items and most of them are private labels. Unlike other supermarkets with never-ending aisles, all stacked with goods that make the store look a lot like a warehouse; Aldi, opts for small stores with not more than ten aisles. Aldi prices are even cheaper than Walmart prices. A major factor in the Aldi business model is marginal real estate costs. As compared to a Walmart Supercenter with around 178,000 square feet of real estate, Aldi discount supermarket stores take up only a fraction of that space. Employees at Aldi are trained to perform a variety of functions to keep the employee count low. Stocking shelves is a major responsibility of an employee at any traditional supermarket, for Aldi however, that duty is trivial. Aldi displays its goods in their original cardboard boxes so that employees can save time stocking shelves.
Other than that, Aldi depends on traditional marketing like word of mouth. Its advertising and marketing expenditures are nowhere close to other supermarket chains’ expenditures. Despite that, Aldi has one of the highest net promoter scores. The proceeds from all this frugality are passed on to the customers who are very happy to trade a high-end shopping experience with cheaper prices.
Aldi discount supermarket chain claims to pay wages above the industry level to its employees and also claims its prices to be up to 50% cheaper than traditional supermarket chains. A Nielsen report suggested that Aldi prices are at least 15% cheaper than other supermarkets.